Scenario 1

What happens if, after five years, 20 per cent of the building ceases to be used for a qualifying purpose but it isn’t possible to identify any specific parts of the building so used? Will the charity have to account for VAT on a self-supply charge based on the value of the whole building?

No. If the building had been used 100 per cent initially for a non-business purpose but use changed to 80 per cent after five years then the charge would still be calculated as at VCONST21600 - that is, VAT due of £100,000.

Scenario 2

The use of the top floor of the building has changed to a business purpose after five years and VAT of £100,000 on a self-supply charge has been accounted for. Another year has elapsed and the non-business activities carried out on the ground floor are switched with those carried out on the top floor so that the top floor is now being used for a non-business purpose and the ground floor is not. Overall, though, the building is still being used 80% for a qualifying purpose. Will the charity have account for VAT on a self-supply charge in respect of the ‘change in use’ of the ground floor?

No. There has been no further ‘change in use’ of the building and so there is no additional self-supply charge. Prior to the switch, 80 per cent of the building was being used for a non-business purpose and, after the switch, 80 per cent of the building continues to be used for a qualifying purpose.

Scenario 3

After five years, rather than change its own use of the top floor, the charity intends to vacate it and let the floor to another charity who intends to use the floor solely for a non-business purpose. Will the first charity have to account for VAT on a self-supply charge because it no longer uses that floor for a non-business purpose?

No. There has been no ‘change in use’ and no self-supply charge is accountable but the charity landlord will need to hold evidence to show their charity tenant is using the top floor solely for a qualifying use. The tenant will have to calculate their use of the top floor to demonstrate that their use is at least 95 per cent for a relevant charitable purpose. A copy of this calculation would be a good example of evidence for the charity landlord. Since the use of any qualifying building must be monitored on at least an annual basis, the landlord should revisit their evidence on an annual basis.

Scenario 4

As at Scenario 3 but the incoming charity, after two and a half years, changes its use of the floor to use for a business purpose. Will the first charity have to account for VAT on a self-supply charge?

Yes. There has been a ‘change in use’ and a self-supply charge will need to be accounted for.

The VAT due will be £50,000, calculated as follows:

Value of original supply or supplies that would have yielded £1 million VAT equals £5 million.

Proportion of the building affected by the change equals 20 per cent.

Number of months remaining in the 10-year period that this part of the building won’t be used for a relevant charitable purpose equals 30 months out of 120.

Value of self supply is £5 million multiplied by 20 per cent multiplied by (30 divided by 120) equalling £250,000.

Scenario 5

What happens if, after the first five years, rather than change its use of the building, the charity sold its entire interest in the building (the freehold or the lease that they hold)?

A self-supply charge will need to be accounted for. The VAT due will be £500,000, calculated as follows:

Value of original supply or supplies that would have yielded £1 million VAT equals £5 million.

Proportion of the building affected by the change equals 100 per cent.

Number of months remaining in the 10-year period that this part of the building will not be used for a relevant charitable purpose equals 60 months out of 120 .

Value of self-supply is £5 million multiplied by 100 per cent multiplied by (60 divided by 120) equalling £2.5 million.

VAT at 20 per cent equals £500,000.

Note: As well as accounting for the self-supply, the charity must also account for the actual supply - that is, the disposal of its freehold or leasehold interest in the building. If the sale of the building is taxable, the VAT due on the self-supply can be deducted as input tax. If the building sale is exempt, none of the VAT will be deductible on the self-supply.

Scenario 6

A charity has constructed a 10-floor building that it fully occupies but it only intended to use the top five floors (Floor 5 to Floor 9) for a non-business activity. As a result, the zero rate only applied to Floor 5 to Floor 9.

The other floors (Ground Floor to Floor 4) would have been subject to VAT. If the charity swaps the use of Floor 9 with the Ground Floor, will the charity have to account for a self-supply charge?

Yes. When applying the ‘change in use’ provisions, you must only look at the part of the building that was originally subject to the zero rate. Since the only floors subject to the zero rate were Floor 5 to Floor 9 and Floor 9 is to be used for a business purpose, a self-supply charge will need to be accounted for.

As in Scenario 1, if this occurs after five years and the zero-rated part of the building originally cost £5 million, the calculation will be the same as above.

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